One of the arguments made by Lynn Tilton in her battle against the administrative law judges of the Securities and Exchange Commission was the inherent unfairness of that judicial system compared to the federal courts. She failed in her battle against the system, but won on the merits.
From October 2010 through May 2015, 90 percent of cases that the SEC brought before ALJs were decided in favor of the SEC. In federal court, the SEC only has an 84 percent success rate. [Cite].
The SEC changed its rules in 2016 to give more discovery to defendants in administrative proceedings. So that discrepancy may be out of date.
As a compliance professional, my job is to keep me and my firm far away from having to appear in an administrative proceeding. So, I have no expertise on the differences between the two judicial systems and why one is more fair than the other.
I got hung up on why have two separate systems at all?
On one side is the administrative remedies for those registered with the SEC. That made sense to revoke licenses and stop securities fraud. Quick actions would protect investors and hopefully provide a quick resolution for a registrant unjustly accused.
The SEC’s powers have grown over the years, particularly with Dodd-Frank. The SEC has been slow to provide some of the federal court protections to civil litigants to those who stood before an SEC tribunal.
The SEC administrative judges provide subject-matter expertise that may lead to better results than with a federal district court.
The SEC’s Division of Enforcement provided a framework for its approach on forum selection. On the basis of that framework, cases with novel or difficult issues are steered to the federal courts. That may account for the different rates of success between ALJs and federal courts.
It’s probably time for the SEC to once again review the procedures in administrative law proceedings to reduce or remove the claim that the ALJ system provides home court advantage.
Sources:
- Home Court Advantage? The SEC and Administrative Fairness by Kenneth Oshita, Southern California Law Review Volume 90, Number 4 (May, 2017)
- The Fight over Home Court: An Analysis of the SEC’s Increased Use of Administrative Proceedings by Ryan Jones in the SMU Law Review 68 SMU L. Rev. 507 (2015)
- Can the SEC Hold onto its Home Court Advantage? An Analysis of the SEC’s Administrative Court
- SEC Wins With In-House Judges by Jean Eaglesham
- The Triumph of Lynn Tilton
- The Advantages of a Dual System:Parallel Streams of Civil and Criminal Enforcement of the U.S. Securities Laws, Remarks by Thomas C. Newkirk and Ira L. Brandriss (1998)
- Division of Enforcement Approach to Forum Selection in Contested Actions
